A portfolio has a standard deviation of 12.1%, a beta of 1.24, and a Treynor ratio of .094. The risk-free rate is 3.2%. What is the portfolio's expected rate of return?
A)14.86%
B)15.25%
C)15.42%
D)16.41%
E)16.56%

Question

Quizplus · Accepted Answer

The Treynor ratio is calculated as (Portfolio Return - Risk-Free Rate) / Beta. Rearranging the formula to solve for the Portfolio Return gives us: Portfolio Return = (Treynor Ratio * Beta) + Risk-Free Rate. Substituting the given values: Portfolio Return = (.094 * 1.24) + 3.2% = 11.66% + 3.2% = 14.86%.

A Portfolio Has a Standard Deviation of 12